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Simply put employees are the number one cost of any business. Wages are just a part of it honestly. Taxes, insurance, workers comp, paid sick leave, unemployment, safety equipment, safe work environment, retirement plans and many other cost that go into having legal employees. Nice thing about illegal employees you don't have any of those things and can pay them next to nothing.

Unemployment and workers comp (which *is* insurance), you're right.

The rest, not so much. I don't know of any states that legally mandate the payment of paid sick leave or retirement plans, and unskilled low-wage workers are unlikely to get such things, legal or otherwise. Hiring illegals doesn't get you off the hook for other workplace safety obligations (which LOTS of employers, even those who hire legal workers, frequently ignore). As for taxes, that actually goes the other way. Tax remittances come out of the employee's part of the pay cheque (though folks making that kind of money typically don't have to pay much tax anyways), and more importantly legitimate payroll expenses are tax deductible. If you're paying employees under the table, you lose the ability to claim that expense as a deduction, and end up on the hook to the IRS for *more* tax.

When you're looking at hiring an employee, the VAST majority of the costs you're looking at are (a) wages, (b) contractual (and not statutorily required) benefit packages, and (c) other incidental costs to having another body in the workforce - like providing workspace and equipment, HR and payroll management costs, etc. Paying a couple percent of wages in unemployment insurance is a drop in the bucket.

Problems associated with certain businesses ignoring employment regulations - safety violations, tax evasion, hours of work and vacation obligations, and even wage violations (failing to pay wages owed on time, refusing to pay overtime, etc.) - are large-scale problems, going FAR beyond issues of 'hiring illegals', and have a much more damaging impact on the labour market than the actual hiring of illegals by some businesses.

I live in Canada, where we don't have a particularly big problem with illegal immigration...but it exists. My partner works in an industry with a large immigrant demographic, and for several years operated her own business. Many of her competitors employed people with questionable immigration status (several of them may have been working illegally; others probably fudged the documents necessary to get a work visa), but THAT wasn't what made it difficult for her to compete. Her difficulty in competing is that most of her competitors engaged in tax evasion, taking cash payments under the table to avoid having to collect and remit the VAT, thus enabling them to undercut her on price.